540. Yes?
(Mr Tait) I think one of the issues has to be how
one can communicate and influence at the level that one has to
communicate and influence because that may well be outwith Scotland
or, indeed, the shores of the United Kingdom itself. However,
I still think that, paradoxically, as the importance of globalisation
increases in the world, so does the importance of local distinctiveness.
Where globalisation does impact on elements of the drinks industry
in Scotland, the reason we are here is not to make us the same
as everyone else; it is because we offer a different, unique,
compelling proposition which they can add to their global armoury.
So I think it does make it more difficult because one has to find
who it is that one has to communicate and influence.

Chairman: Perhaps we could move on to branding.
Sir Robert Smith.

Sir Robert Smith

541. One particular aspect of global competition
is in relation to branding and competition. Mr Barr emphasised
to us that it can take very many years to develop a profitable
brand. Is it realistic to expect that a significant number of
small Scottish companies will be able to compete against the brands
developed by the big multinational companies?
(Mr Tait) No, to be quite honest.

542. You were talking about companies being
innovative?
(Mr Tait) I am giving you the blunt, short answer
and then I will give you the longer, slightly more complicated
one. The last figure that I have heard was that if one is seriously
talking about a branded proposition within the multiple retail
base, then one has to have a war chest of at least £1 million.
That is more indicative in terms of what we are really talking
about here. For Scottish companies, we have to think about creating
ways that we can get round this. Are there ways that companies
can come together, not necessarily in terms of merging but in
terms of collaborative activities underneath an umbrella brand?
Are there ways that we can seek to exploit the Scottishness brand
itself because that does carry weight and import both in the UK
and overseas. But it does not get round the very heart of the
problem which is that it costs money to play in the branded game.

543. You were saying earlier that to have influence
in this globalisation, we need to be able to influence things
outwith our borders?
(Mr Tait) On occasions, yes, or to understand a lot
more. I do not think that necessarily causes me concern because
I think the analysis has to start in terms of where the consumers
and customers' stake in work is. From that, one can begin to understand
and inform back up any given supply chain.

544. Moving on to some other aspects of policy,
the whisky industry has described itself as a "prime example
of an industrial cluster . . . which the Government seeks to foster".
On the other hand, the Scottish Enterprise memorandum argued that
the industry was global and sophisticated and public sector intervention
was inappropriate. Why do you draw that conclusion?
(Mr Tait) One is about clusters and one is about public
sector intervention. There is absolutely no argument whatsoever
that whisky is a cluster, a very powerful cluster in its own right.
Within food and drink, we have sought to try and understand how
we can build on the cluster which is there already but, again,
one has to start off from the level of what actually unites, not
that which causes differentiation between parts of the sub-sector.
We have always recognised, and we have had some early conversations
and we certainly intend to have more with the whisky industry,
in terms of understanding how the whisky industry can connect
in because there has to be an offer, a proposition, there which
is compelling to both sides. One recognises that in terms of public
sector intervention directly into the mainstream whisky industry,
there is very little that Scottish Enterprise can do itself. I
suspect that the whisky industry is one of the principal causes
of the image that Scotland has internationally. It must pump hundreds
of millions into maintaining and growing the image there. So there
is a piggy-backing issue. There is also an issue to do with global
distribution logistics. There is a lot that the food and drink
industry can learn from the whisky industry. We have to understand
what is in it for the whisky industry. That is the conversation
we have to have. When I talk about the whisky industry, I am talking
about majors here. Through the Scottish Enterprise network, small
independents in terms of whisky, in terms of breweries, in terms
of soft drinks, receive and are deemed appropriate for public
sector intervention.

545. Do you have a role in reverse? Do you have
a monitoring role to ensure that there is not negative intervention
by other branches? Do you have a watching brief. Are you able
to say that there is an enterprise consequence of that decision?
(Mr Tait) Yes, we are informally involved in conversations
around other policy matters and if there are issues which we believe
have negative implications, we will raise them but only raise
them. It is not our place to determine policy matters but merely
to suggest what may be the consequences of it.

Mr Sarwar

546. I just want to go back to branding. Branding
costs a lot of money on advertising and so on and it was a very
good suggestion that smaller companies should come together. Are
there any practical moves towards this? Is something happening?
Is there any discussion that companies can set advertising budgets
together?
(Mr Tait) Although we have had the conversation with
some, we have not actually seen that happen yet. We have seen
joint branding happen, which is interesting. One example, and
it is a food example rather than a drink example, is where Baxters
and Walkers and Mackies ice cream cross-branded products. That
is another way of trying to extend the influence of a brand. I
accept that Baxters and Walkers are both at the top end of the
branding league in Scotland. But it is examples like that. Scottish
Enterprise has always been very honest about that. We do not have
the answers here. The industry has to come up with the answers
itself. Maybe our future is not so much in those branded products
but looking more and more at areas where companies can collaborate
effectively. We look at the example of New Zealand where eleven
companies, in both food and drink, came together to make a joint
proposition to Japanese Airlines and won a contract which none
of them would have been able do themselves. It is thinking always
creatively to try to generate market muscle to achieve a market,
be it in branded products or otherwise.

Chairman: We move on now to questions of ownership
and image advantages. Bill Tynan.

Mr Tynan

547. At the present time, especially in the
whisky industry, the companies' headquarters and chief decision-makers
are outside of Scotland. How does that affect the policy-makers
when they are setting policy targets? How big an effect does it
have? Is there a need to have discussion in order to develop the
policy that you want to see developed?
(Mr Tait) If one is talking about Scottish Enterprise,
this is an issue which is much broader than drink itself and it
extends to all sectors of the Scottish economy. There is a very
clear policy of aftercare, of trying to maintain communications
with those companies where it is deemed appropriate to be having
conversations. One can only manage a few of them. Local enterprise
companies tend to work very much with the local manifestation
of a national or international company. If, through those conversations,
it is deemed necessary or appropriate that conversations have
to happen at corporate HQ, then they will happen. I am thinking
in economic development terms. As I said before, there is not
much of a conflict of interest because those international players
are there to seek to optimise, to maximise the revenue that they
can generate from the Scottish whisky industry. They are there
to build and grow as much as anyone else. So it is not as if we
have any real conflict of interest between what they seek to do
and what we would seek them to do as well. Not in the whisky industry
but I know that in other industries, we have had conversations
and we have found companies very amenable to having those conversations.

548. Are your policy decisions guided by the
fact that companies are developing a certain policy and you run
with that or is it you saying to the company, "Look, we have
an idea here whereby we believe this could improve your business",
and if so, do they listen to what you say or do they say, "Look,
this is our business. We are running it"?
(Mr Tait) There is a whole spectrum of potentials
here. It depends how much autonomy the local organisation, the
local manifestation has. If it is solely a branch plant and just
manufacturing to order, then there is very little we can do. If
however, and it is quite often the case, there is an element of
autonomy, we can work with them to ensure that the Scottish offering
and what is happening in Scotland is optimised and maximised from
the Scottish end. The whisky industry is quite different and quite
unique in food and drink because it is, to such a great extent,
owned outwith Scotland. So the whisky industry is one area where
this is most acute. I do not think it really causes any significant
issues in terms of policy-making.

549. Okay, could I move on to image advantages.
The Scottish Enterprise memorandum argued that "Scotland
enjoys a world-wide reputation disproportionate to its size"
and stated that it has begun to tap this potential image advantage.
What steps have you taken in Scottish Enterprise to tap into that
potential image advantage that Scotland seems to enjoy?
(Mr Tait) We do this in many ways. The first and the
most obvious one, I suppose, is Scotland the Brand itself, which
has been set up as an umbrella organisation to promote the provenance
of Scottish goods and services, both within Scotland nationally
and internationally. That then combines with the activities of
food and drink. In terms of Scottish food and drink international,
we have the exhibition at the Scottish pavilion which goes to
all the key international food and drink shows. That seeks to
ensure that everyone is identified under a common umbrella of
Scottishness. That then flows through to specific assistance on
a one-to-one basis for companies which seek to enter and grow
in export markets as well. There is a raft of activity from the
very general in terms of Scotland the brand and moving that all
the way through to very specific one-to-one assistance for companies.
We also have, which will continue to grow, what we are doing in
terms of assisting companies. The one thing that is not mentioned
in my memorandum is the whole issue of electronic e-business and
website technology. That is clearly something where we do have
the opportunity, through the Scottish food and drink website and
through promotional activity there, to promote in a very cost-effective
way the Scottish food and drink industry itself.

550. Are there any barriers that you see which
prevent the Scottish image being exploited to the full and which
prevent you taking advantage of that?
(Mr Tait) The key barrier for any Scottish drink product,
particularly overseas, is one of the economics of distribution.
People suggest that if there is an ex-pat community of x thousand
in some part of Canada, then surely that is a market for Scottish
food and drinks products. Well, it is not enough because that
is not enough given the structures of the marketplace and the
various intermediaries. So the principal one is the economics
of distribution. The other thing, and I think this takes it right
back into the Scottish context, is the extent to which we ensure
the provenance of the products that we actually sell in Scotland.
I mentioned the water when I came into the room. I have been in
Scottish restaurants which have offered me the choice of French
or Italian mineral waters. There is something very self-sustaining
about ensuring that local Scottish suppliers are actually supplying
Scottish products.

Sir Robert Smith

551. Is there any danger, though, as people
latch on to the idea that if you stick "Scottish" on
it, it may add a premium, that Scottish will be stuck on to things
that people do not like and therefore, they will lose that premium?
(Mr Tait) Yes, I suppose so. However, I do not think
that that is sustainable, even in the medium term, because the
marketplace is so ruthlessly competitive now. Whether you are
a niche player or not, the days of saying, "I have a niche
product and so I can be inefficient and charge what I feel like"
are long gone. If the product is not up to it then it is not going
to sell. Yes, there is always the danger with something as broad
and generic as Scottish that some people could step in there to
spoil the party for those who are taking it very seriously. That
is why it has to be quality and it has to be different. Quality
will win out.

Chairman: We will move on to policy design.
Eric Clarke.

Mr Clarke

552. Good morning, Mr Tait. You will be pleased
to hear I am the last to ask you questions. You have covered this
subject but I will go over it again. The cluster approach developed
by Scottish Enterprise emphasises the benefits of co-operation
by companies, particularly in developing information and innovations.
How does the cluster policy deal with the possibility that a company
could use commonly developed information in an uncompetitive manner?
(Mr Tait) I am not too sure how it could. When we
look at examples of what happens elsewhere in any industry, we
cannot tell any industry whether or not to share information.
Where any company chooses to determine that certain information
is confidential and very much proprietary to themselves, then
so be it. What we are aware of, however, is that there is information
out there which we can share. If we look at market intelligence,
most Scottish companies, be they food or drink, and I am excluding
whisky, cannot afford the sophistication of a really truly functioning
marketing department. If we can enable that to happen through
web technology and other sources to provide market intelligence
and to provide information on consumer trends and so on, one cannot
use that information in an anti-competitive way. It is providing
everyone with the same level of information. What it is trying
to do is to provide small and medium-sized companies in Scotland
with the same type of market intelligence necessary for them to
compete against larger companies within the UK and overseas. That
is just one example. We are also looking at areas where learning
and innovation can be shared. Again, this goes back to the comments
which we made earlier about how do people pool resources to enable
them to do things which they could not do themselves. That may
well come through trying to develop some smart packaging technology
over a group of non-competitive businesses. Again, the industry
always has to find the way that it is going to do that. What we
are doing is merely trying to provide the suggestions and the
infrastructure and the facilities to allow that sharing of information
and collaboration to happen. The industry has to determine how
they do that themselves. Does that answer your question?

553. Yes, you are half way there. Can you identify,
in a more general sense, the advantages and disadvantages of the
cluster strategy? Is it one that is worthwhile?
(Mr Tait) As to whether I think the cluster approach
is worthwhile, I absolutely do. This does not come from any great
academic theory which I hold dear to my heart. When we actually
explain what this is to businesses, they say, "But that is
how we run our business". That is why it is a much more compelling
way to look at business rather than just to look at the sector
itself because it has to take in the supply chain and it has to
take in those other businesses and organisations which sustain
and drive the competitiveness of that whole industry. So it recognises
the connectedness of various disparate industries which together
drive the competitiveness of the whole. So I absolutely think
that the cluster approach is the right one. To be fair, this is
not a Scottish Enterprise strategy. I have said that before but
I want to be absolutely clear about it. This is an industry strategy
which Scottish Enterprise and the Highlands and Islands Enterprise,
and above us, the Scottish Executive, support and seek to provide
the appropriate response and support to that strategy. It is very
much led by the industry. In terms of whether Scottish Enterprise
sees itself as a catalyst, we absolutely do. We do that in many
different ways. We have held workshops where we have talked to
people about the joys of joint venture and collaboration and brought
along other industry examples of where that has happened to the
bottom line benefit of the businesses involved. So again, we are
not coming at this from a theoretical proposition. It is what
actually makes tangible benefits for the businesses involved.
We do it through web technology as well. We are using the website.
We are using consumer market intelligence and other things which
allow new ways of sharing information cost-effectively which could
have happened before the advent of information technology. We
have brought together the learning institutions in Scotland for
food and drink. It is a way that all colleges and universities
can actually collaborate and provide a much more dynamic and effective
offering than they do individually and that is something which
the learning industry has bought into. We are doing that in terms
of innovation as well. Where we can see the opportunity to more
effectively do something together, we seek to try and bring the
industry and the appropriate organisations together to do that.

554. There are some good examples of that in
electronics?
(Mr Tait) Yes.

555. And also the biochemistry, in Midlothian,
they are all clusters?
(Mr Tait) Very much so. We have much to learn from
each other. That is the other thing. As industries converge, in
another 10 years time, it will be interesting to see what the
distinctions are between biotechnology and food. It will also
be interesting to see what the distinctions are between food and
drink because the boundaries between those have become very muddy
just now in terms of how and what people consume. So yes, we have
a lot to learn from each other. I am absolutely in favour of the
cluster approach, not in terms of its theory but in terms of the
very compelling actions which the industry are driving out of
it.

Mr Tynan

556. On your final remark about food and drink
coming closer together, Scotland always gives the impression of
being pure and healthy. Do you have any concerns, particularly
in relation to exports, about the effects of BSE and now the foot
and mouth disease, that that may somehow affect sales particularly
of food products but eventually could it make people reluctant
to buy their drinks from us?
(Mr Tait) I think the answer that it may well have
that kind of impact but then again, it may not. That is the interesting
thing about brands. The usual saying is that products are made
in factories but brands are made in people's heads. They do not
have to be that rational. It is an issue, so I am not seeking
to minimise BSE or foot and mouth disease. I sincerely hope that
we can contain and eradicate that very quickly because that is
impacting on the entire food industry just now. But that is seen
as a UK brand issue. Scotch beef is still perceived to be an absolute
premium product across Europe. It has not in any significant way,
as far as we can see, been tainted by BSE. UK beef has been. But
that is to do with the power of brands and we have to continue
to be absolutely vigilant and to maintain and grow those brands
to make sure that they are underpinned by reality at all points.

557. Does advertising not get round that? Two
of the most successful recent products have been Red Bull and
Sunny Delight. If you talk to people they reckon that advertising
can sell anything?
(Mr Tait) Just about anything. If you can promote
and market the product, then it is easier to sell. There is no
question about that. But with things like Scotch salmon, Scotch
beef or Scotch whisky, yes, one has to put all the commercial
strictures behind that but they are something that the world actually
wants to buy.

Chairman

558. You did refer earlier to your food and
drink website. How comprehensive and how successful is your website?
(Mr Tait) I will be honest now. It is a first generation
website, like an awful lot of websites out there just now and
it has significant drawbacks, like many websites do out there.
It is very hard to maintain something where the technology is
changing as rapidly as it is. What was impossible six months ago
in terms of what you could do with the site is now very possible.
That technology acceleration is happening the whole time. What
I am saying is that the site has its limitations. That is the
negative. The highly positive, however, is that what we are trying
to seek to achieve is a portal, a one-door into the Scottish food
and industry which connects with every other web site related
to this. People may not know the name of a specific salmon company
or whatever else but they know the word "Scottish".
So we have a database of all the food and drink companies in Scotland.
We have various other parts of the site to do with distribution
and so on. It is very hard to measure the success of a site. It
is a bit like advertising: you know some of it is working but
you just do not know which bit. A lot of people measure website
success by the number of people who visit. I think that is largely
irrelevant because people can be there for three seconds. The
residence time on the Scottish food and drink website is 20 minutes
on average. People are finding something to do in there and that,
to me, as a real measure of success.

559. You say you list all the food and drink
companies on your website. In relation to the whisky industry,
do you list all the different brands as distinct from companies?
(Mr Tait) No, what we do is that if a company has
said that it wants to be on the website, because if they do not
want to be on it, we cannot put them there, we can hyperlink through
to their own glorious website. The only time that someone stays
on our website is just to find the name and then shoots straight
through to another website altogether. The service that we offer
is to provide a simple, navigable route for an enquirer to find
what it is he wants to find.

560. Do you charge companies to be on the site?
(Mr Tait) No. I think in the future, as the sophistication
of the website develops, in view of the costs incurred in maintaining
and developing that site, we are going to have to find revenue
generating ways of maintaining the site.

561. You did say it was "limited".
Is that cost limited or technology limited?
(Mr Tait) It is just limited. You are not speaking
to a technology expert here so I come at this from a very illiterate
position. But basically, the technology with which the website
was started is something which is limited in terms of its capacity
to do some of the new things. It is this question of at what point
do you stop, almost chuck away and start again? We are not there
yet but we are saying that there will come a time over the next
six months or a year where we will be looking for a more sophisticated
replacement for the website. Nobody in the wide world will know
it has happened. We will because of the pain we will have gone
through to try and get it there. It is technology limited at the
moment. The other thing that is limited, and it is something that
Scottish Enterprise is doing generically across the board, not
just food and drink, we have to get the willingness of small and
medium-sized businesses in particular to appreciate the impact
of on-line technology and the Internet and to explain how that
can be used effectively for their own businesses.

Mr Sarwar: I was talking to someone who was
telling me that the worst and most boring websites are MPs websites.
(Mr Tait) I am technologically illiterate. The positive
side is that I recognise that I am. But I speak to the people
that are not. We have to develop much more in terms of our own
partnerships , with the private sector as well, in terms of how
we develop with things moving forward in technology.

Chairman

562. Did you say how many visits your site gets?
(Mr Tait) I could not tell you off the top of my head.
I could provide you with that information by the end of the week.
It is relatively significant. It is in the hundreds per week.

563. We have exhausted our questions to you,
Mr Tait. Are there any final remarks that you would like to make
to the Committee?
(Mr Tait) I do not think so.

Chairman: Thank you very much. Our questions
were short and your answers have also been relatively short. However,
most importantly, what you have told us has been very important
to the Committee and will be very useful when we come to compile
our report. So on behalf of the Committee, thank you very much
for attending this morning.